Business ideas: superstition or science?

You know when someone comes up with a business idea and asks what you think of it? It’s a tricky moment, because your answer will necessarily be an opinion. Now, if a) you are an expert and b) the business idea is similar to things you’ve seen before, then that may well be a reliable guide. But if the idea is genuinely novel, an opinion, however sophisticated, might prove to be widely off the mark.

Remember the Segway – that two-wheel personal transporter in the film “Mall Cop”? There were plenty of opinions about that one. A lot of people thought the Segway was going to be a massive hit. They thought it was cool.

Not many ever bought one, though…

Never mind the opinion of the masses. How about the opinion of an expert with a strong track record of success, like former Microsoft CEO Steve Balmer? Balmer, who knows a thing or two about technology, thought the market for the iPhone was very limited, especially among business users. For one thing, he thought businesspeople would insist on physical keyboards, an opinion which seemed very plausible, but just turned out to be wrong.

Anyone can get these questions wrong, and the consequences can be far-reaching. For an individual, it might mean wasting years on an idea with no legs, or on the other hand dropping an idea that would have realised their entrepreneurial dreams. For a company, it might mean anything from missing out on significant new revenues, to incurring survival-threatening loses.

Opinions are based on past experience, and in the business world of today, believing that the future will be like the past is not much better than relying on superstition.

What can be done?

Superstition has to give way to science.

When you give or seek an opinion on a business idea, it’s best to treat that opinion as an educated guess.

If you want to sound sophisticated, you can call it a hypothesis.

And what are we supposed to do with hypotheses? We’re supposed to test them with experiments (and if we are going to manage risk, we’re going to do the test as early and inexpensively as possible).

If the developers of the Segway had tested the assumption that people wanted another alternative to the many existing modes of personal transport, they may have got an unpleasant awakening. But they would have also saved millions of dollars which they could have used to pursue something else with their talents.

If Microsoft had taken an iPhone to the trading floor of a bank, they might have discovered that BlackBerry fans would be happy to trade in their keyboards for a touchscreen.

“That’s all fine for you to say in hindsight,” you might reasonably challenge. “But what can I do in advance?”

Answers from Silicon Valley—often filed under “Lean Startup” or “Customer Development” and basically boiling down to applying the scientific method to business innovation—are now being applied not only to startups but in major corporations such as GE and Intuit, often with dramatic success.

In outline it goes like this:

Identify the key assumptions underpinning the business idea.

Find the riskiest assumption – treat it as a hypothesis.

Design the cheapest and quickest experiment you can to test the hypothesis.

Use what you learn to accelerate, modify or, if necessary, drop the idea.

Rinse and repeat.

Testing a business idea in this scientific way takes guts, especially when the evidence might threaten our precious idea, or the boss’s idea, or an idea that we’ve already spent a lot of money pursuing. But the transition from superstition to science has always taken courage, and all innovation has depended on it.

More about the limits of predictions for strategy in an uncertain world

If you want more examples of the limits of expert business prognostications, and some suggestions to discuss in your next strategy discussion, you might enjoy this blog post: “In future I will make fewer predictions”.